HB 
■C5 




I 



BULLETIN OF THE DEPARTMENTS OF HISTORY AND 

POUTICAL AND ECONOMIC SCIENCE IN QUEEN'S 

XJNIVERSITY, KINGSTON, ONTARIO, CAN/J)A. 



NO. 27, APRIL, 1918 



SHOULD MAXIMUIVf PRICES BE FIXED? 







BY 

W. C.^CLARK 



The Jackson Press, Kingston 



BULLETIN OF THE DEPARTMENTS OF HISTORY AND 

POLITICAL AND ECONOMIC SCIENCE IN QUEEN'S 

UNIVERSITY, KINGSTON, ONTARIO, CANADA. 



No. 1, Tl c Colonial Policy of Chatham, by W. L. Grant. 

No. 2, Cataada and the Most Favored Nation Treaties, by 
O. D. Skelton. 

No. 3. The Status of Women in New England and New France^ 
by James Douglas. 

No. 4, Sir Charles Bagot: An Incident in Canadian Parlia- 
mentary History, by J. L. Morison. 

No. 5, Canadian Bank Inspection, by W. W. Swanson. 

No. 6, Should Canadian Cities Adopt Commission Govern- 
ment, by William Bennett Munro. 

No. 7, An Early Canadian Impeachment, by D. A. McArthor. 

No. 8, A Puritan at the Court of Louis XIV, by W. L. Grant. 

No. 9, British Supremacy and Canadian Autonomy: An Ex- 
amination of Early Victorian Opinion Concerning 
Canadian Self-government, by J. L. Morison. 

No. 10, The Problem of Agricultural Credit in Canada, by 
H. MicheU. 

No. 11, St. Alban in History and Legend: A Critical Examina- 
tion; The King and His Councillors: Prolegomena to 
a History of the House of Lords, by L. F. Rushbrook 
Williams. 

No. 12, Life of the Settler in^estem Canada Before the War 
of 1812, by Adan\.sr%ortt. 

No. 13, The Grange in Can?sda, by H. MicheU. 

No. 14, TheFinancialPowerof the Empire, by W.W. Swanson. 

No. 15, Modem British Foreign Policy, by J. L. Morison. 

No. 16, Fedeoral Finance, by O. D. Skelton. 

No. 17, Craft-Gilds of the Thirteenth Century in Paris, by F, 
B. MiUett. 

No. 18, The Co-operative Store in Canada, by H. MicheU. 

No. 19, The Chronicles of Thomas Sprott, by Walter Sage. 

No. 20, The Country Elevator in the Canadian West, by W. C. 
Qark. 

No. 21> The Ontario Grammar Schools, by W. E. Macpherson. 

No. 22, The Royal DisaUowance in Massachusetts, by A. G. 
Dorland. 

No. 23, The Language Issue in Canada; Notes on the Language 
Issue Abroad, by O. D. Skelton. 

No. 24, The Neutralization of States, by F. W. Baumgartner. 

No. 25, The Neutralization of States, by F. W. Baumgartner. 

No. 26, Profit-Sharing and Producers' Co-operation in Canada, 
by H. MicheU. 

No. 27, Should Maximum Prices Prevail? by W. C. Clark. 



SHOULD MAXIMUM PRICES BE FIXED ? 



SIXTY years ago it was said that if you could teach a parrot 
to repeat the words "supply and demand" you would have 
a first rate economist. The gibe was not wholly undeserved, 
for the law of supply and demand had been made to work over- 
time and as currently stated was meaningless. Economists 
have long since atoned for the fault and few to-day are blind 
worshippers of the old laissez-faire policy. Since the war, 
however, the cheap trick of scoffing at supply and demand has 
become the fad with a certain class of newspaper and politi- 
cian who fail to understand the law or indeed the nature of any 
economic law, forgetting apparently that such a law is a mere 
statement of observed tendency rather than the arbitrary 
decree of any group of reactionary economists. To-day the 
economist who fails to acknowledge the "repeal" or breakdown 
of this old formula is ridiculed in the press for teaching "un- 
timely economic doctrine," and at once forfeits all chances of 
becoming Food Controller. 

In view of such popular misunderstandings, a word as to 
the explanation of prices may not be out of place. Value is a 
rate of exchange between goods ; a good has value in proportion 
to its power to purchase other goods in the market. Price is 
merely value expressed in terms of money. The old formula 
that price was determined by supply and demand explains 
little, if anything, by itself. No light is thrown upon the pro- 
blem of prices until we explain the nature of supply and de- 
mand, the forces acting behind and determining them, and the 
precise way in which they do operate on prices. Demand is 
popularly supposed to mean desire for a good; as some one 
has shown,however,the street urchin with his nose glued to the 
window of the candy store represents desire enough for the 
sugar-stick but no demand — until that desire is backed up by 
ability and willingness to pay the penny. Demand for a good, 
therefore, is the amount that will be bought at a price, or 
rather at each of a series of prices. Similarly dependent on 
price, the supply of any commodity is the amount that will be 
offered at each of a series of prices. Thanks to the existing 
inequality of incomes and to the diminishing satisfactions 



which we all experience in consuming successive units of a 
stock, we find that more units of any commodity will be bought 
if the price is lowered, less will be bought if the price is raised. 
Therefore if sellers wish to induce buyers to take more of their 
product, they must reduce its price. To what extent will 
depend on whether the demand for the good is elastic or rigid 
— whether, as in the case of luxuries, it increases very rapidly 
as price falls, or whether, as in the case of a necessary like 
bread, it fails to respond as readily to the pull of lower price. 

Turning to the supply side, if consumers want more of any 
commodity, they must offer a higher price ; if they want less, 
they will probably be able to force prices down. Here again, 
the extent of the change in price will depend on the nature of 
the industry, whether it is such as to involve increased cost 
per unit for an enlarged output, or constant cost, or decreased 
cost. Thus if consumers desire more wheat or coal or copper 
some or all of the additional units will be produced under less 
favorable cost conditions and a considerable increase in price 
will be necessary to coax the necessary supplies. In any case, 
if the market is an open one, a price will be established which 
will bring about an equilibrium or balancing of supply and de- 
mand. The amount demanded by the buyers at this price will 
just equal the amount offered by the seller at the same price. 
Everyone will be satisfied. If the price were lower, some con- 
sumers would not secure all they wanted at the low price ; if it 
were higher some sellers would be left with stock on their 
hands. Price then at any one time serves to equate demand 
with the supply available in the market. Over a period of time 
it provides an automatic indicator for producers and dealers to 
follow. Rising prices attract capital, labor, or goods ; falling 
prices are a sign of warning. This analysis assumes of course 
the active organizing agency of competition, the ceaseless 
striving of men after a maximum return to their exertions. 
We must, however, make the proper allowances for those 
cases where competition has given place to monopoly, and 
for the motivating power of patriotism, and the other 
social economic values which tend to counterbalance self-in- 
terest; but when all has been said and done, Adam Smith's 
familiar dictum remains unshaken, "It is not from the benevo- 



lence of the butcher, the brewer, or the baker that we expect 
our dinner, but from their regard to their own interest." With 
relatively few exceptions, they best serve their own interest 
who serve ours best. The reward for success in anticipating 
and satisfying our wants is great, the penalty for failure is 
economic death. 

Besides organising production and arranging for the geo- 
graphical distribution of goods, price performs a very import- 
ant function in regulating consumption and distributing the 
available supply evenly over a period of time. This can best 
be illustrated by considering the work of the speculators who 
are now being branded as criminals because they hold back 
goods for higher prices, A moment's consideration will show 
that these much-maligned individuals, while serving them- 
selves, also render important service to the public. Our crops, 
for instance, are harvested in a few weeks each year, yet 
everyone will admit the desirability of distributing these 
crops as evenly as possible over the succeeding months until 
the next harvest. It is much less disagreeable to live on three- 
quarter's of one's usual quantity steadily throughout the year 
than to have the usual quantity for the first six months and 
only half the usual quota for the remainder of the year. Some- 
one must therefore assume the risk, responsibility, and capital 
outlay involved in holding commodities in order to perform 
this important function. Whoever accepts this risk of price 
fluctuation, whether he be farmer or middleman or consumer, 
is a speculator. The better organized trades develop a special- 
ly selected and specially trained class of risk-takers and provide 
elaborate machinery to aid them in studying market con- 
ditions. These men are constantly appraising the various 
factors affecting supply and demand and their competition in 
buying or selling determines the price level which in turn 
governs the distribution of the crop and promotes a uniform 
consumption of the crop throughout the year. If the price is 
held too high during the following months, the crop is not 
used up fast enough and the "market breaks" during the fol- 
lowing winter or spring. If the price is kept too low in the 
early months, too much of the year's supply is consumed and 
when this is realized, the price begins to soar, as it did in the 



case of potatoes in the spring of 1917. Potatoes were sold at 
too low a price the preceding fall and by January 1, only about 
30 per cent, of the United States' crop remained. As 15 per 
cent, of this remnant was in farmers' hands, the farmers 
were the chief speculators. The shrewder the speculators 
are in forecasting future prices, the more nearly will the daily 
market prices conform to that price which would promote a 
uniform consumption of the crop throughout the season. 
While there is undoubtedly a large amount of blind speculation 
or pure gambling by mere "hangers-on" of the business, the 
legitimate speculators perform their function with unusual ef- 
ficiency, and over a period of years it is doubtful if their pro- 
fits are more than enough to pay for the services performed. 
To take only one instance. Prof. Weld of Yale has found that 
those who held potatoes in half of the last 10 years lost money 
by so doing. Of course there is the danger that some big 
operator will "comer" the market or that a small group of 
dealers may get control of supply and illegitimately boost 
prices. But at this point we need only say that successful 
corners are exceptionally rare, that they can be effected only 
with the utmost difficulty, that their effects in the past have 
been only temporary and confined almost wholly to other 
speculators, and that the commercial penalty for unsuccessful 
corners is so severe as to be more deterrent than any legal 
penalty would be. 

So much is an indispensable basis for any understanding 
of prices and the price system. For prices do constitute a 
system. Value and price are relative terms; many goods are 
substitutes for others; almost every good, on the supply side, 
has genetic relationships with other goods, having been made 
out of them or of the same materials or supplied by the same 
set of enterprisers; business competition, again, in seeking 
highest profits, is constantly changing the relative supply of 
commodities so as to bring about a balance on the basis of. cost 
prices. Because of these and a myriad of other factors, the 
prices of all goods and services are knit together into a highly 
complex system, "a system infinitely flexible in detail yet 
stable in the essential balance of its relations, a system like a 
living organism in its ability to recover from the serious dis- 



orders into which it periodically falls."* It is remarkable how 
little understood this price system is, yet no other institution 
so intimately reflects the myriad conditions which make up 
life,t or so profoundly determines the guidance of economic 
activity. Supplemented by pecuniary competition, the desire 
of men to 'make money," it organizes and coordinates our 
multifarious industrial activities, bringing together men and 
"jobs," capital and opportunities for investment, supply and 
demand for goods, in such a way as to satisfy our manifold, 
constantly fluctuating needs and whims with wonderful ease 
and regularity. The maintenance of our modern system of 
specialization or division of labor requires the continuous or- 
ganization into a single coherent whole of a wide variety of 
services, materials and forces. This task of organization is 
a most delicate one, requiring careful measurement and nice 
adjustment. "This delicate adjustment of parts," to quote 
Prof. Hamilton, "has been made possible by the rise of the 
institution of pecuniary calculation, which assigns to the sat- 
isfaction of each desire, to the use of each raw material, to each 
service, to each good, its definite price. Its precision makes 
possible the maintenance of a highly exact and articulate or- 
ganization of unlike parts in an industrial order. The prices 
which make it up constitute an organic system, not a mere 
aggregation of unrelated items, each having such ultimate con- 
nections with the others that the whole can best be represented 
by means of a vast intricate and tangled network." 

We now know something of the way in which prices are 
determined, of the functions which they perform, and of the 
interaction of motives and forces which relate them to each 
other. We are therefore in a position to estimate the value of 
any criticisms of the present system and appraise the merits of 
any substitutes proposed. When, for instance, the President 
of a great American University says that the law of supply 
and demand has broken down "for the very simple reason that 
for every staple commodity the demand is greater than the 

*W. C. Mitchell, "Business Cycles," P. 31. 

fW. H. Hamilton, "The Price System and Social Policy," in Journal 
of Political Economy, January, 1918, P. 41. 



supply," he has failed to grasp the meaning of the law. What 
he is really troubled about is that it takes a higher price than 
the customary one to equate demand and supply. We have 
become accustomed to more or less stable prices for the chief 
staples. A sudden and extensive rise evokes a howl of rage. 
One of the most difficult things for a people to do is to revise 
its standard of living — downward. A nation will without a 
murmur give its sons to be crippled or killed but a doubling of 
the price of bread, a reduction of sugar purchases, and all the 
relatively small inconveniences which a rapidly rising price 
level brings home to every household, will be vigorously resist- 
ed with threats of strikes in vital industries and bitter curs- 
ing of speculator and profiteer. It was ever thus. Every war 
has brought its unusual rise of prices and each time the public 
has been wont to, and taught to, regard the rise as "unnatural, 
artificial, and wholly unjustifiable, being merely the wicked 
work of people who want to enrich themselves, and who are 
given power to do so, not by the economic conditions . . . but 
apparently by some absolutely direct and inexplicable inter- 
ference of the devil." 

The faintest acquaintance with the principles enunciated 
above should show the foolishness of such a belief. Take the 
present war for example. The supply of goods has been great- 
ly decreased by the transfer of millions of men from pro- 
ductive to destructive pursuits, by the destruction of supplies 
through submarine and raider, by congestion and waste in 
transportation, by unfavorable weather for crops, by the in- 
creasing exhaustion of raw materials and the consequent ne- 
cessity of pushing out to poorer and poorer sources of supply. 
On the other side war has brought insistent and increasing 
demand for many of our commodities, especially food and raw 
materials. This demand has been made effective, and has 
been tremendously increased, by war-time inflation or the ab- 
normal increase of money and credit, thanks to a system of 
war finance which in some countries made too free use of the 
printing-press but which in most simply secured a large part 
of the necessary funds through credit loans from the banks 
rather than from the actual savings of the people. Canada's 
inflation, for instance, is in part simply a reflection of world- 



wide inflation and in part a result of loaning to the Canadian 
and Imperial Governments for war purchases and to individu- 
als to help them to subscribe to Government loans. Exploitation 
may have had some importance in particular instances, chiefly 
local, and panicky buying had undoubtedly more, but these are 
relatively minor factors. Scarcity, enlarged demand, and in- 
flation, these are the three root causes of the present trouble, 
and the greatest of these is scarcity. High prices were ine- 
vitable if the fewer goods were to be equated with the increased 
desire and ability to buy goods. If we will have world-wars, 
we must pay for them. No war finance, not even the "Made 
in Germany" brand, can avoid the burden, or even pass the 
the greater part of it on to our grandchildren. One of the 
ways in which the largest class in all countries will have to 
suffer is by paying higher prices for its necessities. Rather 
naively. Royal Commissions after elaborate investigations 
have come to the conclusion that the worker's standard of 
living has in many cases been lowered. Could it well be 
otherwise ! 

Not only are high prices an inevitable result of war but 
they would seem at first sight at least to be the best possible 
correctives of the conditions which brought them about. On 
the one hand they are S.O.S. calls to producers all over the 
world to increase production. Thus the pressure of war de- 
mand drove the price of spelter or zinc from 5 cents to 27 
cents a pound. The influence or rising prices, however, was 
soon reflected in the zinc-producing districts. Prospecting was 
stimulated, new mines were opened, smelters were enlarged 
and new ones built. Production increased so rapidly that 
prices have since fallen to below 8 cents, a figure which, con- 
sidering higher costs, compares quite favorably with the pre- 
war price. Thus the problem has worked itself out. Of 
course there are instances where supply is temporarily fixed 
and could not be affected by higher price but such cases are 
very rare. Again high prices are the most vivid way of bring- 
ing home to consumers the fact that a shortage exists, they are 
indeed the only real preceptors in the matter of economy and 
substitution. In these two ways high prices bring about their 
own cure; but they are a remedy, not without disadvantages, 



8 

for they tend to hit the poor with special severity and they 
may mean inflated profits for fortunate producers or dealers. 
However these defects may in part at least be corrected and 
in any case comparison has not to be made, as we shall see,with 
any ideal remedy. 

The popular remedy is one which attacks the symptoms 
of the disease, rather than the cause. Soon after the outbreak 
of this war, as of most wars, governments were besieged with 
complaints against the rising cost of living. The blame was of 
course laid at the door of speculation, profiteering, exploitation 
by middlemen. To curb this wickedness, all that needed to be 
done, so the press told the public and the public told the gov^ 
ernment, was to fix maximum prices. Now it is conceivable 
that the State could fix prices with success. But certain condi- 
tions would have to be fulfilled. The State would have to 
understand thoroughly the nature of prices and the price sys- 
tem, and would have to assume the various functions with re- 
gard to production and consumption which the price system 
and competition have been shown to perform. Whether a 
single authority could be set up with wisdom enough to exer- 
cise the power with any certainty of beneficial results is doubt- 
ful, for the play and interaction of all the motives and consider- 
ations that determine prices and relate them to each other 
would seem to defy human calculation. History is full of 
unsuccessful attempts. The experience of Julian the Apostate, 
of Constantine, of Mediaeval Europe, of some American colon- 
ies during the Revolution, of Revolutionary France, goes to 
show that governmental regulation of prices usually results in 
aggravating the evils which it seeks to remedy. But an age 
of supermen, of super-organizers, may defy the teaching of 
history. Success is still conceivable. In the following para- 
graphs, we shall attempt to discover whether in the present 
war governments have been any more successful in realizing 
the nature of and executing the great task which popular 
clamor against high prices forced upon them. 

The case for fixing prices is in large part merely the criti- 
cism of what Mr. Hoover calls "the specious arguments of the 
siren of high prices." The force that drives most Govern- 
ments to adopt the policy is the popular cry that if prices rise, 



^H'l 



the poor alone suffer. High prices, it may be, reduce consump- 
tion, but they reduce it through the methods of famine, throw- 
ing the greater part of the burden on the people of limited 
means. Money, if you like, is just a system of food or com- 
modity tickets ; your dollar bill is a blank ticket, enabling you 
to command the world — to the extent of one dollar. Unfortu- 
nately these tickets are unequally divided and as long as tnis 
is true, what is an inconvenience to the rich man may be a 
cruel hardship to the poor. But, on the other hand, the fact 
must be accepted that any remedy that materially reduces 
consumption must accomplish its object chiefly through the 
great body of consumers. The rich after all are relatively few 
in number and their consumption of the chief necessaries, such 
as bread, is individually very little greater than that of the 
masses of the people. Besides they are better able, and per- 
haps as a class more likely, to respond to a patriotic appeal 
for substitution of foods and readjustment of diet. Finally, 
the real point is whether the 'proposed alternative offers any 
better solution of the problem. Can the unequal incidence of 
high prices be remedied by any governmental legerdemain 
with prices? 

Recent experience confirms the verdict of history that the 
moment a government attempts to fix maximum prices, it sets 
in motion forces which react to the injury of the poor even 
more than to the injury of the rich. The English handling of 
the sugar question is a case in point. As this is a commodity 
of which the supply was absolutely controlled by the govern- 
ment, this is usually cited as a successful instance of price 
regulation, but a Royal Commission reported last summer that 
if other necessaries were similarly controlled and distributed, 
the unrest would become very dangerous during the winter. 
Finding itself with only 75 per cent, of the usual importation, 
the Sugar Commission, instead of rationing the people or sell- 
ing the diminished quantity for what it would fetch, simply 
fixed a price somewhat below the market level. At this price 
it turned the sugar over to the grocers in proportions in which 
the total was divided before the war and insisted on their 
distributing it equitably among their regular customers at 
corresponding prices. As businesses wax and wane, and as 



10 

an unexampled shifting of the English population had occurred 
since 1913, the grocers found it impossible to work out the 
principle strictly. They adopted instead what was perhaps the 
best course left open to them by giving away the sugar "with 
a pound of tea," "sometimes in the literal sens,e of that expres- 
sion, but more often simply by being accommodating or other- 
wise, according as the would-be purchaser of sugar was in 
respect of other things a customer whom it was desirable to 
placate." The results were worse than if no attempt had been 
made to control prices.^ For in the first place, if allowance is 
made for indirect payments and for the large amount of in- 
convenience and annoyance endured, the consumers as a 
whole paid just as much as they would have paid in an open 
market. And in the second place, unrestricted prices would 
have brought a more just distribution of the shortage. Under 
the scheme adopted, the restriction of supply fell almost 
wholly on the poor who were "choked off" by the grocers, and 
on those localities where the industrial population had grown 
most rapidly. Obviously the desire of the retailer to placate 
the rich would give the wealthy at least their usual advantage. 
The poor could seldom afford to spend a couple of shillings on 
other things for every pound of sugar bought and so were fre- 
quently refused any sugar at all. Food Controller Devonport 
steadily refused to force the grocers to sell because he realized 
that at the government price the sugar would not have gone 
round and the queue system of distribution would have result- 
ed, first-comers getting all they asked for and late-comers get- 
ting none at all. Time and again during the present war the 
test of physical power which is involved in the queue system 
has been proved just as inequitable as that of money power and 
much more conducive to industrial unrest. The scandals of 
unequal distribution of sugar finally compelled the adoption of 
a system of rationing based on registered orders. 

The defeat of other attempts to help the poor by price 
fixation has been brought about by simpler methods of evasion, 
usually by some consumers ignoring the fixed price and pri- 
vately offering more. Instances of such evasion in every 

iProf. Cannan, Economic Journal, Dec. 1917, p. 466. 



11 

country are legion. The present Food Controller of France 
compares himself to a gamekeeper surrounded by poachers 
and laments that "The tradespeople and middlemen have in- 
vented no end of tricks to evade my prescriptions, and this I 
blame for my present embarrassments. They have been, I 
might almost say, the greatest curse of this war." ^ But for 
conclusive evidence we must go to submissive, law-abiding 
Germany, and here the evidence is overpowering. "It is an 
interesting commentary on the psychology of a people," says a 
volume^ recently put out by two experts of the United States' 
Food Administration," to realize that, despite patriotism and 
discipline, Germans of means never hesitated to circumvent 
the food laws in order to secure from the producing class food- 
stuffs whose sale was contrary to regulations. Despite con- 
stant appeal by the authorities that success in the war depend- 
ed in part upon the maintenance of the food regulations, pro- 
ducers were always willing to break them, and so were the 
consumers of means." Or again, "Evasion was easy and con- 
stantly practised, the evasion taking the form of direct com- 
munication outside of the state channels of trade, between the 
producer in the country and the consumer of means in the 
city. . . The people of means could secure more than their 
share of dairy products,' meats, fruits and vegetables through 
price manipulation and circumvention of the regulations that 
were impossible to the working classes. On the other hand, 
the classes of means could secure more than their legal share 
of flour and sugar because these could be hoarded, whereas 
hoarding was impossible to the poor because of lack of money. 
Under these circumstances, the natural trend of events worked 
to the advantage of the well-to-do classes and to the disadvan- 
tage of the poor." Professor Ashley tells us that so 
numerous were the violations of the bread regulations by the 
bakers "that in a great city like Frankfort the Municipal 
Council had to give up the whole of every Wednesday to such 
cases, until the Government conferred summary jurisdiction 

2Toronto, Globe, Feb. 14, 1918. 

sKellogg and Taylor, The Food Problem, pp. 86-7. 



12 

on the Public Prosecutors." ^ Even under the present ration- 
ing system, Herr Michaelis himself admitted that bread tickets 
had been forged (chiefly by the the rich, of course) and ille- 
gally used in appalling numbers. In Munich, 50,000 more 
bread cards were issued than there were inhabitants." Another 
indisputable proof of unjust distribution was the fact that 
while Germany had bread grains sufficient to have guaranteed 
a flour ration of 300 grams per capita, the ration was first fixed 
at 225 grams, then 220, and then as low as 175, though 
it was later restored to 220. This meant that the 20,000,000 
industrial workers had to suffer dearly because the 25,000,000 
agrarians consumed more than their pro rata of foodstuffs, fed 
a portion to domesticated animals, and sold to the rich in dis- 
regard of the regulations. Finally the steadily increasing 
severity of the penalties attached by law to the violations of 
official regulations bears eloquent testimony to the fact that 
the Germans are becoming a nation of law-breakers. This 
augurs well for the German people but not for the theory of 
maximum prices. 

But evasion is not the greatest objection to fixing prices. 
The vital objection is that a maximum price, if it achieves its 
object of lowering the price below the market level, discour- 
ages production and thus accentuates the scarcity which is the 
root cause of the consumer's present trouble. Asi Mr. Hoover 
put it, "you find immediately when a maximum price is estab- 
lished that all of the consumers of the country who can open 
a chain directly with the producer at once do so, and they not 
only open a chain for their daily needs, but they proceed to 
hoard at once, and the phenomenon accompanying a maximum 
price .... has been the total disappearance of that commo- 
dity all the way from a fortnight to three months from the 
normal market, because those minority consumers who can 
reach the producer directly will absorb the whole supply and 
they will make their own bargains and often if they do make 
it they set up a cycle ; and it has been an economic failure ex- 



iQuarterly Review, Oct. 1915, p. 461. 
2The Spectator, April 14, 1917. 



13 

cept where there has been a club to enforce it."^ Mr. Hoover 
was not thinking here of the permanent results which are even 
more serious. The chief mistake of the price fixers is to fail 
to realize the widely different costs of different producers and 
set a sort of average price, which may be fair enough for some 
producers but which is below the cost of those who are unfavor- 
ably situated. The latter curtail their production or drop out 
of business altogether. The nature of the industry is of im- 
portance in this connection. If you take a highly specialized 
manufacturing industry, price fixing is fairly feasible, because 
production is carried on in a few large factories specially de- 
signed and equipped for a narrow line of product, raw ma- 
terials are obtained and products disposed of through well- 
defined channels, and cost-accounting is more or less highly 
developed. The manufacturer will find it very difficult to di- 
vert his energies to some other line and will, if necessary, run 
at a loss for a considerable length of time. But with agricul- 
ture it is entirely different. "Food production is carried on 
not by large companies but by multitudinous farmers; some 
large, but the majority small, who do not keep books, who can 
obtain their materials and dispose of their produce in all sorts 
of odd ways, and who in the normal course of their industry 
produce a score or more kinds of foodstuffs in the year and 
expand or contract one in favour of another as prices and 
rotations prompt. Limit the price of milk and the farmer 
can churn it into butter; limit butter prices and he can give 
you cheese; limit cheese prices and instead of dairy products 
he can give you meat; limit meat prices and he can put his 
land under potatoes ; fix a price for potatoes and he can turn 
to the next, and the next, and the next kind of produce that is 
still 'free', until such time as his last resource is rounded up 
and he goes out of farming in sheer weariness and disgust. If 
low food prices in combination with optimal home production 
are considered imperative, nothing less than the bringing of 



^Hearing on Production and Conservation of Food Supplies before 
U.S. Senate Committee on Agriculture and Forestry, 65th Cong., 1st 
Sess., Part 4, pp. 377-8. 



14 

the farmers into the category of 'controlled firms' will suffice, 
and he would be a bold food controller who would essay that."^ 
But may it not be possible that during a great war the 
results of fixing prices will be less harmful than all economic 
experience would lead us to expect? Will not the wonderful 
patriotic motive which now exalts and purifies the actions of 
men counteract the compelling power of that self-interest 
which governs them almost entirely in times of peace? This 
is conceivable but unfortunately the evidence allows no such 
optimism. Paris fixed a maximum price for butter but only 
succeeded in driving butter away to localities where it could 
be sold for what the market would pay. Other maximum 
prices which the French Government fixed had the same re- 
sults and after much discussion those for potatoes, milk, but- 
ter and cheese of all kinds were finally abolished. England 
found the same difficulty when Lord Devonport interfered with 
the price of milk and butter. The attempt of Germany to fix 
prices for grains was a regular "fiasco" and may be described 
in the words of Dr. Taylor,^ Mr. Hoover's assistant : — 

The German agricultural classes regarded these prices, high 
as they are, as below the extraordinary costs of production in 
war time, and they have never equalled a normal crop in any 
one of them or an average of the normal crop. Of course, fer- 
tilizers were scarce, labor was very scarce, and all of the con- 
ditions were difficult, but the financial impulse was lacking. 

They took from the farmer all his oats and half his barley; 
they took from him, theoretically, or could take from him all 
his wheat and rye, except certain portions left with him for his 
own family. But the relative prices tempted the farmer to sell 
barley as such and to feed the wheat and rye to his live stock. 
The farmer was requisitioned for half his barley and the other 
half of his barley left to him to do with as he pleased. He 
sold it and then turned around and fed ^wheat and rye to his 
stock instead of barley. The Government has each year dis- 
covered a difference of 1,000,000 or more tons of rye and wheat 
between the crop estimate and what they finally secured. In 
theory they confiscated those grains; in practice they could not. 
They did not have anyone to send to the farmer for the grain; 

ij. Hilton, Edin. Reveiw, July 1917, p. 46. 

^Hearings before U.S. Senate Committee already referred to, Pt. 4, 
p. 426. 



15 

they did not have the wagons to bring the grain from the farm. 
They have no large elevator systems in Germany and had no 
places to store the grain. All they could do was confiscate on 
paper. They took so much, and said, "We will get the rest of 
it in units of sO much per month," and then at the end of the 
seventh or tenth month the man who came to get that month's 
unit found that the farmer had fed it to his live stock. What 
was to be done with the farmer? They could not fine or im- 
prison him; he could not be penalized. They were helpless 
before the farmer. In other words, having failed to stimulate 
production by adequate encouragement, and having held the 
price of bread low, they defeated their own object in both 
directions, produced dissatisfaction with the producer, estab- 
lished little satisfaction with the consumer, and lost a large 
amount of human food that was diverted to the feeding of 
animals. 

Again the handling of the meat problem is quite of a piece 
with this story of miscalculation. The facts have been made 
available by an article in the British Economic Journal,^ 
which we shall freely draw upon in this paragraph. The Ger- 
man meat problem is primarily one of fodder which had been 
imported in enormous quantities before the war. Thus it first 
became acute in early months of 1915 when the potato famine 
forced the reduction of the ranks of "potato devourers" from 
over 25,000,000 to 16,500,000 head of swine. "In reply to the 
obvious question, What became of the corpses of these slaugh- 
tered millions ? one has but to refer to the contemporary mush- 
room growth of meat preserving factories and to the numer- 
ous advertisements during the following summer, offering de- 
cayed sausage meat at low prices for foddering purposes, to 
realize that large numbers of capitalists were taking advan- 
tage of the situation to adapt themselves to a new and lucra- 
tive branch of industry." The rising meat prices brought 
forth a chorus of complaint in September and culminated in 
October in street riots and the familiar night-long queues out- 
side closed market halls. To such events the Press and public 
responded with the usual insistent cry for maximum prices 
and, after the superficial and half-hearted action of the autho- 



^Mary Stocks, "The Meat Problem in Germany," Economic Journal, 
June 1916. 



16 

rities in prescribing "meatless days," the desired measure was 
at last forthcoming, November 4, upon approved Teutonic 
lines. The immediate effect was reflected in the lament of the 
Kolnische Zeitung of November 16: "Our farmers are now 
withholding pigs as they withheld potatoes." The normal pig 
supply of 12,000 a day on the Berlin market dropped roughly 
to 5,000 in late November and to 3,000 or less in February. 
The usual forms of illegal evasion are recorded, "such, for 
example, as weight manipulation, the addition of bones, 
presents by stock dealers to the children of farmers, incidental 
fees, together with frank, unashamed demands by dealers to 
butchers, who dared not prosecute for fear of cutting them- 
selves off from future supplies." Moreover, much of the 
above-mentioned depleted market supplies disappeared into 
the meat-preserving factories, for preserved meats could be 
stored for speculative purposes, "in preparation for the future 
statutory price increase which experience has taught German 
producers to regard as the reward of arbitrary withholding." 
After several tinkerings with the maximum price order, the 
authorities finally despaired of solving the meat problem by 
price regulation and substituted therefor the old conservative 
ideal of food control on the lines of organized production, the 
entire live stock trade being compulsorily syndicated in the 
hands of provincial organizations of the traders concerned. 
Parenthetically, it may be said that Germany's fodder problem 
will now be solved, if transportation can be organized, 
by the importation of unlimited amounts of sunflower meal 
and coarser grains from Russia. 

Another illustration may be taken from the experience of 
the United States. The unprecedented prices to which soft 
coal had risen in the early part of 1917 led to tremendous ef- 
forts to increase supplies. Hundreds of new mines were 
opened and up till August the production of 1917 exceeded 
the extraordinary record of 1916 by an enormous margin. 
Output reached a climax in July. Then the price was fixed at 
$2 per ton at the pit's mouth. August saw a violent drop to 
a level which after a slight recovery in September was again 
reached in October. Car shortage was blamed for the de- 
crease, but as a matter of fact this existed before as well as 



17 

after the new policy went into effect and according to Prof. 
Anderson^ was responsible for only half of the reduced output 
between August and November 10. There seems little doubt 
but that the price-fixing order which by the way was revised 
upwards on October 27 and several times later must bear a 
large share of the responsibility for the coal famine of last 
winter. Factors which accentuated the scarcity were failure 
on the part of many consumers to lay in their usual stock be- 
cause of Dr. Garfield's repeated assurance that sufficient coal 
would be forthcoming at the Government price, failure on the 
part of some mines to work their best veins or to pick over 
their coal, and failure on the part of the Government to fix the 
price of coke. Instead of selling three tons of coal at $2 a 
ton, it paid producers to convert them into two tons of coke 
which sold at $6 a ton.^ This was just one of the complex 
inter-relations of prices which the Government failed to 
realize. 

A special despatch from Vancouver to the Montreal Star 
of March 21 shows us that Canada can also furnish neat illus- 
trations of this principle : 

Fishermen operating from this port, Victoria, Nanaimo and 
other coastal points, are tying up their boats as a result of the 
regulations and restrictions imposed upon them by the terms of 
the Order-in-Council recently passed for the purpose of stimu- 
lating the consumption of fish throughout Canada. The men 
contend that it is impossible for them to make a living at the 
ratp set by the regulations. For several days past the fishermen 
have been tying up their boats as they came in, rolling up their 
gear, and have started out to hunt jobs in shipyards and other 
places where wages are high. 

In fairness it should be said that there are possibly a few 
cases where the diminution in production has not been serious 
enough to counterbalance the saving in price to the consumer. 
The fixing of copper prices in the United States is probably 
such an instance, for the mines which were closed down by the 
231/^ cent price, though fairly numerous, contributed but an 

^Proceedings of Amer. Econ. Association, Dec. 1917. 
^Unpopular Review, April-June, 1918. 



18 

insignfiicant part of the total production. On the other hand 
one must consider the damper given to prospecting for new- 
sources of supply and the failure to provide to the utmost for 
the copper famine which competent observers predict in the 
next few years. 

On the whole consun;ers as a class and particularly those 
of limited means find by bitter experience that the fixing of 
maximum prices aggravates rather than relieves the inevitable 
burden of war. What about the second main argument used 
by its advocates — the claim that it is necessary in order to 
stop "profiteering" and other devilish commercial practices of 
middlemen,which are supposed to be mainly responsible for the 
scarcity and the high prices ? There is no doubt that suspicion 
of profiteering has been very widespread and in England at 
least has been one of the main causes of industrial unrest. 
Just what profiteering is, few people know and nobody dares to 
define. If it means securing control of available supplies, 
creating artificial scarcity, and thus boosting prices, it is highly 
reprehensible. But this has occurred to so small an extent 
that the effect on the general price movement has been insig- 
nificant. Doubtless there have been instances, chiefly local 
and on a small scale, but numerous investigations in several 
countries have hitherto been without results, even though the 
Commissions contained Labor and Socialist members. Besides 
there are remedies more effective than price-fixing. 

If profiteering means storing up supplies in order to sell 
later at a higher price, it is difficult to see where 'the harm 
arises, for as we have already seen, speculation of this sort is 
a legitimate device for keeping consumption more equable than 
production. If too much is stored up or hoarded by a dealer in 
this way, the dealer loses his bet ; price may be higher now but 
it will be much lower when the increased supply is eventually 
thrown on the market. There is much talk of destruction of 
part of the supply in such cases, but obviously unless a man is 
a monopolist it is foolish to destroy part of his property. The 
wholesale condemnation of speculation represents a sudden 
excess of righteousness for Canada over five years ago when 
every second or third man had sunk his money in Western 
town lots — the least defensible kind of speculation — ; and 



19 

when it comes to hoarding, few housewives have the right to 
cast the first stone. Moreover, before a government forbids 
speculation and hoarding, it should recall to mind the parable 
of the five foolish virgins and then make sure that it is both 
able and willing to perform the necessary function which it is 
denying to private individuals. 

Finally, if profiteering means simply taking advantage of 
the state of the market, i.e. of supply and demand conditions 
without illegitim.ate manoeuvring, it is undoubtedly true that 
it has been a source of inflated profits to fortunate producers 
and dealers. But is it wrong for a seller to take advantage 
of an increased demand for his goods ? Is it right for a buyer 
to get all he can for his money and wrong for a seller to get all 
he can for his goods? Since all of us are both buyers and 
sellers, shall we have one rule of conduct when we are buyers 
and another when we are sellers ? Suppose the seller did not 
take advantage of the market, would market price be lower or 
would the extra profit simply be diverted to another pocket 
through resale by the first purchaser to a more eager purchas- 
er ? In other words are the sellers responsible for high prices 
or is the cause the frantic scramble of the buyers for the avail- 
able supply? Finally if resale did not take place and prices 
were actually getting below the market level what would be 
the eflfect on consumption and production? Would the exist- 
ing abnormal conditions tend to be corrected ? Such questions 
have only one answer. But, it will be asked with horror, do 
you justify the taking of a profit of 80 per cent, on the capital 
invested in a meat-packing plant — to quote a beloved Canadian 
example ? In reply it may first be noted that the reduction of 
that profit to zero would have reduced the price of meat only 
to a very slight extent. In the second place, if there was no 
unfairness in the securing of the contracts, the policy of the 
company in taking the highest market price was best in its 
own interest and in that of the public. But that is far from 
saying that such huge profits should be left with the company , 
it is rather a case for such drastic taxation as has recently 
been announced. 

But while profiteering in the objectionable sense has been 
a minor factor, the suspicion that it did exist had a great deal 



20 

of influence in driving governments to adopt the expedient of 
maximum prices. Has such government regulation had any 
greater success from this point of view? It is not necessary 
to multiply illustrations. Those already given showing the 
extent to which evasion has been practised suggest the answer. 
We can perhaps accept the conclusion of the two sympthetic 
observers already mentioned^ that especially as regards perish- 
able products, "speculation has not been checked" and "ex- 
tortion has not been prevented." In the case of bread and sugar 
in Germany, greater success in their opinion was obtained, the 
middleman's margin being held down, thanks in the first case 
to a formula which made the price of bread per pound equal 
to the price of flour per pound, and in the second case to the 
complete governmental control of supply. But the proof of 
the violations of the bread regulations already adduced shows 
that even here the success obtained was far from -perfect. 

Before drawing final conclusions as to the actual working 
out of price fixing experiments, a few special cases may be 
given. What of England's recent experience ? Providing any 
control of prices is permissible, Lord Rhondda's methods have 
been as careful and as scientific as they could possibly have 
been. On assuming office he stated his policy was "to fix the 
prices of those articles of prime necessity over which it was 
possible to obtain effective control at all stages from the pro- 
ducer down to the consumer." But as he was determined to 
avoid if possible a general system of food tickets or other 
detailed rationing, he realized the necessity of allowing pro- 
ducers and middlemen enough profit to ensure adequate sup- 
plies, and of setting prices high enough to check unnecessary 
consumption. Acting through skilled accountancy, therefore, 
he has tried to determine costs at every stage in the progress of 
the commodity from producer to consumer,and to fix price mar- 
gins which would leave a sufficient incentive to the business 
man to further the work of food supply without allowing him 
to plunder the public. But careful as Lord Rhondda has been, 
he does not seem to have avoided the danger of tempting the 
dealer to withdraw supply from the market or to transfer his 



1 Kellogg and Taylor, Op. Cit, P. 84. 



21 

resources to unregulated or more favorably regulated trades. 
As of his predecessor it has been said of him : "As soon as he 
touches anything it disappears from the market ; he interferes 
with one commodity and another hits him on the nose ; every- 
thing he does has the most surprising results." Just one more 
illustration of the danger of tossing a monkey wrench into the 
delicately adjusted mechanism of the price system! To illus- 
trate only from the meat problem, English farmers assert as 
a body that Rhondda's scale of meat prices has made it more 
profitable for the farmer to slaughter his cattle in an immature 
state, and this assertion seems to have met no serious refuta- 
tion. The Central Chamber of Agriculture declares that the 
fixed prices for bacon and pigs do not cover the cost of pro- 
duction and "will stop the breeding and rearing of pigs."^ Mr. 
Clynes, a Labor Member of Parliament and Parliamentary 
Secretary to the Ministry of Food, confessed that "the price 
of meat had been reduced to so low a figure that they found 
retail butchers' shops were closing because the butchers could 
not pay their way at the prices charged, and they had to con- 
sider a small increase so that the men engaged in distributing 
meat might have a reasonable wage for their services to the 
country."" Last December a government campaign was in 
full swing urging voluntary reduction of meat consumption to 
2 pounds per week, and Lord Rhondda was insisting there was 
little or no diminution in the flocks and herds in the country. 
But within a few weeks, the meat queue made its appearance 
and the voluntary ration was compulsorily halved. Obviously 
maximum prices had as much to do as the submarine with the 
sudden change. Finally Lord Rhondda has been forced to give 
up his original policy and embark on the elaborate policy of 
compulsory rationing — so far, only for meat, margarine, tea, 
butter, fats and sugar. Perhaps this had to come, but we 
may be sure that price fixing brought it sooner and left scantier 
supplies to be divided when it did come. 

The friends of government control of prices would expect 
much from the experience of the Australian states, which 

^Morning Post, Dec. 6, 1917. 

3Quoted in The Spectator, Jan. 12, 1918. 



22 

have long been the home of "advanced" legislation and which 
since the war have pushed state regulation to quite new limits. 
According to a competent Australian economist/ himself a 
member of a price-fixing board, the success of the measures 
taken to keep prices down has been the subject of marked 
controversy. In Victoria and West Australia price-fixing was 
abandoned after a trial of twelve months. Though in other 
states the laws were taken more seriously, Mr. Wilkinson con- 
cludes that on the whole such price-fixing "had little effect on 
the cost of living, though in some instances it resulted in 
cheaper commodities, as long as original supplies lasted." The 
last clause has a world of meaning! A statistical examina- 
tion of the rise in prices showed a greater rise in regulated 
Sydney and Brisbane than in Melbourne and Adelaide where 
there was little regulation. On the other hand a favorable 
verdict is passed upon federal regulation and on most of the 
various attempts of the state or municipal governments to en- 
gage directly in commercial enterprises, e.g. Sydney's fish 
shops. 

High claims have been made for the success of the attempt 
by the Governments of Canada and the United States to fix 
the price of wheat. It has been said for instance that in the 
absence of restrictions flour would have gone to $25 a barrel. 
In spite of initial hoarding by farmers, enormous supplies of 
wheat and flour have been secured for export to the Allies. 
Public speculation is almost a memory and the crop, it is claim- 
ed, has been distributed more evenly than ever before, without 
terminal accumulations and consequent storage costs and de- 
lays. It is true also that when the Canadian Board of Grain 
Supervisors met recently to fix a price for the next crop, there 
was practically no criticism of the work of the Board and of 
the fixing of prices. There have been some instances of eva- 
sion; inferior grades of wheat have been bought at the price 
of the best grades, and in some instances the U.S. Government 
has had to enforce its threats of commandeering grain of farm- 



•iWilkinson, State Regulation or Prices in Australia. The writer has 
had to depend on a lengthy review in the New York Evening Post, April 
11, 1918. 



23 

ers who were unnecessarily holding it back. But such cases 
have been relatively insignificant. 

It is however too early to give any ultimate judgment. 
For one thing we must wait to see if the present supplies of 
wheat last until the new harvest. We know that the U.S. has 
recently fallen far short of its promised monthly shipments 
to the Allies — partly, but not wholly, because of tonnage scar- 
city. We know also that the supply of wheat in both countries 
is only a fraction of the normal reserve at this time of year, 
and that Mr. Hoover is now urging a great reduction, indeed 
a halving of ordinary domestic consumption. Evidently the 
appeals to patriotism and all the "push" behind Mr.Hoover's or 
Mr. Hanna's conservation and substitution program have not 
been as effective in eliminating waste and checking consump- 
tion as slightly higher prices would have been. Anyone famil- 
iar with rural Ontario at the present time knows to what ex- 
tent wheat is being fed to live stock ;^ to expect anything else 
is to put too great a strain on the benevolence of the farmer 
who finds that the present fixed price for wheat, when com- 
pared with the current unregulated prices for oats and barley 
makes it the cheapest food for finishing hogs and feeding 
poultry. 

But a more important test will be the magnitude of this 
year's harvests. Undoubtedly there will be an Increased pro- 
duction of wheat in both countries for weather conditions have 
been excellent, and farmers will as a class make some response 
to the insistent appeal that has been made to them, for there 
is more than patriotism in wheat at $2.20. But the majority 
of farmers will not be able to resist the much louder appeal 
of $4.50 flax, $1.90 barley, $2.50 rye, and 95c. oats, and into 
these the major part of the surplus effort will go. The news- 
papers tell us of the estimated increase in wheat acreage in 
the West ; they fail to tell us of the immensely greater prospec- 
tive increases in the coarser grains. Would it not have been 
better to have let the market take its own course? If prices 
had risen somewhat higher than they have been in recent 
months, they would at any rate have been more eloquent advo- 

iNote frequent letters to the Toronto Globe. 



24 

cates of greater production than all the printer's ink that has 
been wasted, and no premium would have been placed on the 
production of other grains. The extraordinary production of 
wheat that would have resulted would probably have solved 
the famine problem of the Allies and brought lower prices than 
we shall have to pay next winter. 

But would $5 wheat and $25 flour have been tolerable? 
This argument against high prices that it puts bread almost 
beyond the reach of the masses no longer has the same force, 
now that Mr. Hoover tells us all we must reduce our consump- 
tion by one half and substitute other cereals. It is impossible 
to say what the uncontrolled price might have been but it 
seems probable that the above alarming estimates are exag- 
gerated. While wheat did rise one day last May to $3.05 m 
Winnipeg and $3.45 in Chicago, the explanation is not far to 
seek. The significance of a series of unprecedented events had 
just dawned upon all those interested in grain. What with 
heavy losses through submarines, the failure of the crops in 
Argentine and Australia, discouraging reports from England 
and France, record winter killing of winter wheat acreage in 
the U.S. and bad weather in Canada, the world actually faced 
the prospect of famine. Alarming advice from Washington 
initiated a continent-wide campaign of flour hoarding by 
American consumers and this in turn was reflected in a furious 
competition of the millers with the already competing Allied 
buyers. This latter point, the lack of a unified authority, has 
until recently been a grave defect of Allied purchasing policy ; 
at one time, for example, there were 30 or 40 Allied buyers, 
so Mr. Hoover told the U.S. Senate, furiously competing for 
the purchase of the bean supply of Brazil. But the immediate 
cause of the greater part of last May's sky-rocketing of prices 
was due to the fact that the Royal Wheat Commission, with 
the best intentions but with slight insight into the methods of 
the grain trade, had '"cornered" the market; in other words, 
the market for the better grades had been oversold and the 
short sellers were forced at almost any cost to buy wheat to 
cover their sales. The public of course blamed the speculators 
for the high prices, not realizing that practically all the specu- 
lation was on the selling side of the market and would there- 



25 

fore tend to drive prices down. The machinery which had 
been built up by a long process of commercial evolution and 
which was run at the moment by an admittedly able group of 
men, had just failed to rise to the supreme occasion but it had 
not been entirely discredited. Would Government control 
have done as well? One wonders what would have happened 
if earlier in the year, before anybody could have foreseen that 
series of disastrous events, a price-fixing body had established 
a rigid fixed price. Was it not better that prices should have 
been allowed gradually to adapt themselves to the abnormal 
situation from the first moment that a few of the shrewdest 
dealers began guessing that all was not well with the wheat 
supply? Would it not be preferable to-day to have a more 
elastic system of control, one which would daily adapt itself 
to the changing situation, one which would automatically 
bring consumption and production into equilibrium, and one 
which would not disturb with untoward consequences the deli- 
cately adjusted relations of the price system? Control would 
of course be necessary, especially control of exports to pre- 
vent supplies seeping out in too great quantities to the neutral 
nations, such control also as would bring the hitherto com- 
peting Allied buyers under a single authority with power to 
allot purchases in accordance with needs. This might be 
supplemented by such oversight of speculative trades as the 
officials of the grain exchanges voluntarily introduced last 
summer — it should be noted that by the first week in July the 
price had been brought down to a range of $2.20 to $2.30 in 
Winnipeg, without any government control. Monthly reports 
of holdings, profits, etc., might also be required from all li- 
censed grain dealers, and corrected if necessary by inspection 
of books. 

We must conclude that the overwhelming weight of evi- 
dence is against a policy of fixing maximum prices. While 
ostensibly an easy solution for the problems of profiteering 
and the distress of the consumer, it fails to accomplish the 
objects sought and it has a multitude of unforeseen conse- 
quences which are frequently worse than the original evils. 
It fails to check waste and unnecessary consumption ; it drives 
the commodity from the market and discourages production; 



«,* 



26 

it throws out of balance the sensitive mechanism of the price 
system ; it involves endless frauds, with a general lowering of 
the moral standards of the community. It therefore aggra- 
vates the conditions which it seeks to remedy and if pursued 
far enough, it will inevitably drive the Government to adopt 
two other drastic measures. For arbitrary prices determined 
with no reference to competition must be supplemented by 
arbitrary regulation of production and consumption. The 
State, that is to say, must control production and direct the 
production of the different commodities, either by a system 
of compulsory labor or by some graduated scale of rewards 
which would lure the requisite proportion of laborers to the 
different industries. Further consumption would have to be 
controlled by an elaborate system of rationing. Only by so 
doing would the State ensure the performance of the various 
functions ordinarily performed by the competitive price sys- 
tem which has now been discarded, in whole or in part, as the 
governor of industry. Most Governments fail to understand 
those functions^ — so automatically and unconsciously are they 
performed at present — or to see the necessity of assuming 
them. If they do take up the burden, there is at least a chance 
of success, though the task is so huge and so complicated that 
it might seem to require something like omniscience on the 
part of a single authority. For instance, all the available 
evidence goes to show that Germany, in spite of her wonder- 
fully efficient bureaucracy, has made at least a partial failure 
of rationing, and as for production she has regarded any com- 
prehensive measure of control as impossible even for her. 

In Canada, at any rate, the adoption of these meas- 
ures is entirely impracticable. Control of production in 
either of the two ways suggested is obviously impossible. 
Rationing is likewise impracticable because the population is 
scattered so thinly over so large an area and because the 
system would require a civil service and police staff dispro- 
portionate to the total of the population. Mr. Hoover's con- 
clusion on this point for the U. S. is even truer of Canada; 
figuring that it would require more than 1,750,000 people, he 
says, "rationing is a hopeless suggestion and one which can 
never under any possible conception be imposed on theAmerican 



27 

people." We may therefore congratulate ourselves that our 
own authorities have placed production before price and with 
a few exceptions have steadily refused to adopt a policy of 
fixing mamimum prices. 

But to deny the efficacy of what seems the simplest solu- 
tion iS' not to deny the desirability of the State concerning itself 
in other ways with the problem which war has created. The 
conclusion reached above was not based on any doctrinaire 
belief in laissez-faire but on a study of the facts of experience. 
Other forms of State interference or State guidance can un- 
doubtedly be justified by the same test, by the ability to con- 
tribute in actual practice to a greater measure of social welfare. 
Space permits only the barest mention of a few of these. 
They are all based on the principle that the causes rather than 
the symptoms of the disease must be attacked. Thus since 
the root cause of the present trouble in the Northern Hemis- 
phere is scarcity, Governments should bend every effort to 
augment supplies. In the case of food, for instance, organi- 
zation of labor supply; aid to producers in securing seed, 
fertilizers, tractors and other machinery ; removal of artificial 
obstacles, wherever possible; proper direction as to probable 
trend of future demand; education of producers as to best 
methods; provision of timely and accurate market informa- 
tion ; direction of substitution in food production — such things 
are indispensable. Most people recognize the necessity of 
some fundamental reorganization of our productive resources. 
Where labor, materials, capital, etc., are painfully limited, 
every possible care should be taken to direct them solely to the 
production of essentials and,indeed,only those with the highest 
food values. The food administration should take all practi- 
cable steps to facilitate such a reorganization. It is conceiv- 
able that, if the supply of any commodity is of supreme im- 
portance and if conditions are so uncertain as to provide little 
or no incentive to producers, the guarantee of a minimum 
price may be necessary, as has been given for wheat in the 
United States, and for potatoes and the grains in England. 
But there are grave dangers of serious financial losses to the 
State and of creating a vested interest which will resist its 
own removal. 



:M 



28 

On the demand side also, much can be done. Correct in- 
formation and sound advice will do much to prevent panicky- 
buying and can be effectively supplemented by organization of 
buyers, encouraged and directed by the Government. Waste- 
ful consumption can be reduced, substitution of less needed or 
more nutritive foods can be secured, by elaborate publicity and 
advertising campaigns. Much has been done in this field al- 
ready, though mistakes have been made through lack of an ele- 
mentary knowledge of psychology and economics. Man is not 
a glorified test-tube, nor should he be advised to consume 
high-priced commodities which represent a wasteful working 
up of our potential food resources. In these days when the 
largest part of the commercial supply of poultry comes no 
longer from the barnyard as a cheap by-product, the average 
man wisely refuses to accept the $2.00 chicken as a regular 
substitute for his $1.00 three pound beef roast. To demand 
chickens and thlis divert labor to a very wasteful process of 
converting food potentialities into actual food can only be 
justified on the optimistic assumption that the war is to be 
won out of existing stocks of food. But a common sense cam- 
paign for economy, substitution, and wise consumption could 
do a great deal to stretch supplies and check that panicky 
buying which now tends to give the sellers of certain com- 
modities a quasi-monopoly position. 

Finally, to meet that mixture of good and evil which is 
condemned wholesale as "profiteering," the most effective 
remedy is drastic taxation of excess profits, taxation far more 
drastic and pervasive than we have yet attempted. To this 
end, registration and licensing of middlemen of every kind and 
for all important commodities ; periodical reports as to supplies, 
costs price margins, and profits ; and power to inspect books, 
if necessary, will be indispensable if "tab" is to be kept 
on trade conditions and the taxation program made effective. 
Mere publicity will do a great deal to keep dealers within 
bounds. But if any instances of objectionable profiteering, 
such as manipulation or cornering of the market, do occur, 
these can easily be discovered by experts, and revocation of 
licenses, commandeering of supplies or other appropriate pen- 
alties should follow. Profiteering in the ordinary tense, i.e. tak- 



29 

ing advantage of market conditions, would merely result in ex- 
cessive profits and these would almost wholly come back to 
the public in the form of taxes. Greater revenue from tax- 
ation would mean that the Government would not need to raise 
so much by credit loans. Less inflation would therefore re- 
sult and hence one of the chief reasons for high prices would be 
removed. A policy of war finance based, not on inflation but 
on drastic taxation, chiefly of incomes, is long overdue in all 
countries. 

If it did actually happen that the price of the chief neces- 
saries rose to a level absolutely beyond the reach of a certain 
class in the nation, a case would be made out for more radical 
remedies — perhaps higher pension or separation allowances, 
enforcement of a minimum wage high enough to make possible 
the purchase of sufficient necessaries, or even a Government 
subsidy. Some of these would of course be attended by dang- 
ers. The raising of wages would have to be confined to a limited 
class, else a vicious circle would result — higher wages leading 
to higher prices, higher prices to higher wages, and so on. 
Again such a policy as the English bread policy, whereby, 
chiefly for political reasons, bread is sold below cost, and the 
diff'erence is met out of the Treasury, involves the State in 
heavy expenditure and will probably encourage rather than 
check the consumption of the subsidized product. The case 
for should be clearly proved. Rising prices should not be 
considered apart from rising wages. To what extent do 
steadier employment and higher wages make up for higher 
prices? Not wholly, we must admit, but the following quota- 
tion from the organ of the British Fabian Socialists is signi- 
ficant:^ 

"It is literally true that there were at all times more people 
hungry in England in the years of peace and prosperity that 
preceded the war than there are now in the fourth year of 
unprecedented conflict and expenditure — more infants per- 
ishing for lack of milk, more children found at school insuffi- 
ciently nourished, more adults slowly starving to death, more 



iNew Statesman, Feb. 2, 1918, p. 418. 



30 

unfortunate and friendless aged passing silently out of life 
from sheer lack of food and warmth. Far fewer families m 
the British Isles failed to get not only a full but even an extra- 
vagant Christmas dinner in 1917 than in 1913." 

This statement, which is corroborated by organs repre- 
senting such different angles of social sympathy as The Nation 
and The Spectator, gives one a better perspective, and re- 
minds us that the evil of unequal and inadequate incomes is a 

peace problem as well as a war problem. 

W. C. Clark. 



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